THE U.S. DOLLAR Gold Price would need to rise to $10,000 an ounce for every Dollar of the US monetary base to be fully backed by gold, according to a strategist at a leading investment bank.
In addition, a shrinking number of perceived safe-haven currencies have left investors who might consider Buying Gold with fewer "honest" alternatives.
Switzerland's recent announcement, for example, that it would peg the Swiss Franc to the Euro has served to "narrow the universe of honest destinations for flight capital with which gold has historically competed," says Dylan Grice, member of the Global Strategy Team at Societe Generale.
"Gold has no export sector, no pop-economists to be swayed by, and no populists to pander to. Gold might be a mere lump of dense, useless shiny metal, but it's one which crackpot central bankers can't print."
In a research note published today, Grice describes printing money as a "fundamentally dishonest endeavor" – and explains that the Swiss National Bank "has given up trying to be honest in a dishonest world".
Despite hitting all-time highs recently, the Gold Price, argues Grice, is still way below what it would need to be to fully back the entire US monetary base.
"Benchmarked against the printing of The Ben Bernak, the price of gold at which the US dollar would be fully gold-backed is now $10,000."
The current situation is markedly different to that observed in the 1970s gold bull market – which culminated in the Gold Price setting its inflation-adjusted all-time high in 1980.
"You might think such a 'price target' is far-fetched (and I might agree with you). But bear in mind that the last time honesty was perceived to be so scarce – in the 1970s gold mania – the Dollar was over-backed by gold...If it happened then, why not again?"
The Fed currently has almost $3 trillion in assets on its balance sheet – a 233% increase since September 2008, the month in which investment bank Lehman Brothers collapsed.
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